In his fifth State of the State address, Schwarzenegger proposed a constitutional amendment that would smooth out state spending growth to match 10-year averages in an effort to avoid the volatility that has characterized the state budget in the last eight years.

“For several years, we took actions that balanced the budget as long as the economy was booming,” Schwarzenegger said. “For several years, we kept the budget wolf from the door. But the wolf is back.”

Under the governor’s plan, any time revenues grew faster than the 10-year-average growth rate, the excess would be put into a rainy-day fund. When revenue growth dips below average, the rainy-day fund could be used.

The measure also gives the governor and his finance director greater authority to make cuts midway through the fiscal year – without legislative approval – if the budget picture worsens.

But the governor’s proposed constitutional amendment is likely to falter in the state Legislature, where Democratic leaders have resisted past efforts to cap spending and said Tuesday they would rather close tax loopholes and boost tax rates.

Schwarzenegger tried spending-limit measures at least twice in his first term. The first attempt was watered down by the Legislature before voters approved it in 2004. The second, stronger measure, which included spending caps and midyear-cut authority, was rejected by voters in 2005 after the state’s labor unions mounted a fierce and expensive opposition campaign.

Assembly Speaker Fabian Nunez, D-Los Angeles, said the governor’s plan does not reflect Democratic values, and he especially objects to any midyear-cut authority that would take budget power away from the Legislature.

“So far, respectfully, it’s a one-sided proposal, and it doesn’t work for us,” Nunez said.

Instead, he said, elected officials should be looking at revising the tax system to reduce dependence on the most volatile sources of revenue and to close tax loopholes for the rich. Increasing tax rates, he said, should also be on the table, but only as a last resort.

But Republicans are expected to resist any efforts to increase taxes or close what Democrats call loopholes, which require two-thirds votes.

Assembly Minority Leader Mike Villines, R-Fresno, said the size of the deficit will put tremendous pressure on Democrats to reform the budget process.

“There is no gray area. We do not have enough money,” Villines said. “And I think that provides an environment for real reform.”

Sen. Tom McClintock, R-Thousand Oaks, called it disingenuous for the governor to talk about fiscal reform while at the same time pushing for a multibillion-dollar health-care reform plan, funded by increased fees.

“I’m very disappointed,” McClintock said. “I don’t understand how out of one side of his mouth he can promise fiscal restraint and out of the other, the biggest social spending program (health-care reform) in the history of this or any state.”

Some analysts believe the chance of Democrats and Republicans coming together in agreement on budget reform is no greater than it has been in the past four years.

Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., said outside special interests put far too much pressure on the Capitol for lawmakers to reach easy agreement.

“Special-interest politics will win out. Basically, what’s happened is we’ve fallen into all these factions. We each have our own narrow interests.

“It’s a good idea,” he said about the governor’s plan, “but will he be able to implement it? I don’t think so.”

The governor’s 25-minute speech was received in the Assembly chamber with less applause than his previous State of the State addresses, reflecting the more somber task ahead for legislators and the more modest proposals offered by the governor. Legislators politely applauded, but there were no standing ovations or wild cheers.

“I don’t think he was received as well as in the past,” said Assemblyman Lloyd Levine, D-Van Nuys. “He’s been an independent governor to a certain degree, but he’s alienated both sides significantly on a number of issues.”

“I watched him walk in, and the Republican response to his entrance was tepid. I watched Republicans mock-applaud – like `I don’t really want to applaud.”‘

The governor’s other State of the State proposals include greater use of public-private partnerships to build infrastructure; programs to bring 20,000 new engineers into California’s workforce; expanded training and credentialing programs to help add 100,000 new teachers over the next decade; and improvement of data collection on students.

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